South Korea is one of the world’s fastest growing and most exciting Ecommerce marketplaces. Merchants have cottoned onto this and are now harnessing this opportunity and the country’s digital capacity to bolster their own revenues using cross-border payments.
In this Q&A, Roman Tazetdinov, Head of Geo Expansion at Worldline Digital Commerce shares his views on the South Korean market and provides advice for companies looking to expand their presence there.
What are your impressions of the South Korean Ecommerce market and its payments system? How do people tend to shop?
South Korea has the highest internet penetration rate in Asia – currently at 97% and an impressively high smartphone penetration rate of 85%. This has led to many consumers using their phones as a vehicle for online purchases and payments to the extent that the nation’s Ecommerce market size in 2020 was $96bn and is forecast to increase dramatically to $242bn by 2025.
South Korea is actually a very distinctive marketplace. Electronic payments started to develop in Korea in parallel with Visa and Mastercard’s international expansion. This has led, over time, to the establishment of eight card companies in the country, which operate with their own local brands without any connection to either of the more widely recognised ‘Global Big 2’.
Once these major operators had established themselves in South Korea, the country concentrated on enabling their young, travelling citizens to pay overseas and, as a result, some cards started to be co-branded (through Visa and Mastercard). Now the market is 50-50, i.e. 50% of cards are co-branded and 50% are not.
Some of the biggest local card names include Samsung and Hyundai. These two electronic behemoths are part of eight other corporations which have built their own ecosystems, so they not only sell electronic devices, TVs and cars etc. but they have also entered different areas of business, including card payments.
What sort of advice would you give for companies wishing to enter the South Korean market?
One of the biggest challenges when entering a new market is the language barrier. In some countries in the Asia/Pacific regions, such as Hong Kong and Australia, there is no such barrier, because the majority of people speak English. However, in South Korea many fewer people speak English and so to establish yourself in the country or conduct meetings, you may need an interpreter.
The language barrier can be connected to the payments side of the business too, as you will need to establish a website which has both Korean and English versions, presuming the former is desired, to ensure local customers can easily navigate and complete their payments journey.
Merchants need to go beyond that too – it is vital they offer their customers their preferred local payment method and currency. They must also ensure they have access to both local and co-branded international cards, not least as 80% of online transactions are done through a card. If they don’t, they could see lower conversion rates and below-par payment experiences. Thus, finding a local PSP is important for any merchant.
The South Korean Won is a highly restrictive currency, and so it’s worth converting it, where possible, to USD at a guaranteed foreign exchange rate through a local bank account, which you can do through a handful of payments providers including Worldline. This allows merchants greater security against FX fluctuations and the ability to send money back to their country of origin.
Do you need a local entity to conduct Ecommerce business in South Korea?
It’s unadvisable for merchants to set up a local entity in South Korea. Localisation is a very important part of the cross-border payment experience for merchants. Nevertheless, setting up a local entity is difficult, particularly when, as previously mentioned, a country’s language, culture or currency is different to your own. Setting up a local entity also means increased time to market and investment before a merchant can fully establish their international operations.
Using the right payments provider will save merchants both time and money in their quest to expand their business in a new country or territory.
Are there any particular sectors that are doing well in the cross-border Ecommerce space in South Korea?
Yes, for cross-border payments this is mainly e-retail and fashion. As of 2017, fashion made up about 30% of the market.
The success of online retail businesses in the region has led the way for other industries to consider this highly connected and thriving region as a strategic destination for growth.